Monaco residents set for tax refund

A heavy tax burden looks set to be lifted from many foreign Monaco residents who own property in France.

27 February 2014

A HEAVY tax burden looks set to be lifted from many foreign Monaco residents who own property in France.

They could also be due a refund of considerable sums of income tax paid in the past.

France’s top administrative court, the Conseil d’Etat has ruled against an article of the French tax code which for years has affected residents of Monaco who are neither Monegasque nor French.

Article 164C states that people who are not tax residents of France but who have homes there for their own use must pay income tax on them on a sum equivalent to three times the market rental value of the property, unless they already have French source income of a higher amount, in which case they will be taxed based on that instead.

This rule is modified by various tax treaties with other countries, however the one between France and Monaco means that neither French residents – who are subject to income tax in France, unlike other foreigners in Monaco – nor Monegasques, have to pay French tax under this law.
However people of other nationalities, such as Britons and Americans, do.

The law has been challenged over the years as being unfair because it discriminates on the basis of nationality; however matters came to head with a ruling on December 26 by the Conseil d’Etat that the article breaks European law on the free movement of capital (for example, where people want to invest in property in France).

Tax lawyer Christophe Pelloux, from Nice, confirmed the ruling. “The article 164C is contrary to the Treaty on the Functioning of the European Union, notably articles 63 and 64 which forbid discrimination between the states of the EU and also discrimination between the EU states and third-party states.

The Conseil d’Etat said in the case of article 164C this article cannot apply. It will not apply in the future nor for the past. However people who’ve been taxed in the past will not be reimbursed as a matter of course.”

It was however expected that many people concerned would be able to reclaim tax paid in the last three years (2013, 2012 and 2011), Mr Pelloux said. To do so he said they would have to make a réclamation contentieuse – a letter contesting the previous tax, providing legal arguments and evidence to the effect that the person has a right to a dégrèvement (reimbursement). “It’s necessary to do an analysis case by case but bearing in mind the expected effect of the Conseil d’Etat’s ruling, it does appear to apply to quite a large number of the people concerned.”

Furthermore he said the ruling is also expected to mean that reimbursements could be claimed for the same years with regard to the higher-than-usual capital gains tax that has been levied when a person living in a non-EU country like Monaco sells a French home (33% instead of 19%). “We should be able to obtain a reimbursement of the difference between 33% and 19% paid on sales in 2011, 2012 and 2013”, he said.

This was likely to apply to residents of many other non-EU countries as well, he said, though it would be necessary to check the effect of existing tax treaties between these countries and France.

However officials at the tax office of Menton, where Monaco residents submit forms should they need to make a French income tax declaration, said they had not yet been briefed about the matter.

One official said they were aware of the ruling but added: “We’ve heard about it from people contacting us with questions but we can’t say anything yet – for the time being we do not know because we have no official information. No doubt they will tell us before April.

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